INDUSIND BANK LTD. vs VIMAL MITTAL

VIMAL Mittal, wife of Shri J.R.Mittal, filed a complaint against : (1) IndusInd Bank Ltd.; (2) National Securities Depository Ltd.; (3) Rolta India Ltd., through its Managing Director, in the State Consumer Disputes Redressal Commission, U.T., Chandigarh. It was contended that she was holding 160 share certificates of Rolta India Ltd. which she sent to the IndusInd Bank Ltd. for dematerialization, but there was unjustified delay in converting the same in dematerialised (electronic) form and hence the complaint was filed by the complainant in the State Commission claiming compensation for the loss suffered by her. It is contended that after the Depositories Act, 1996 came into force these paper shares were required to be traded in dematerialized (electronic) form and in order to convert the paper shares, the Complainant submitted the shares of the Rolta India Ltd. to the IndusInd Bank Ltd. (Opposite Party No.1) on 2.7.1999. It is contended that as per the Investor"s Guide to Depositories, the dematerialized form would normally take about 15 days time which could be extended to 30 days in the event of very large number of shares submitted for conversion into dematerialized form. It is alleged that for no fault of the Complainant, the conversion of the shares was considerably delayed for one reason or the other and it was belatedly done only on 12.4.2000. Hence, a legal notice was issued to the Opposite Parties by the Complainant, for the loss suffered, on 28th March, 2000.

IN the written version filed by the Rolta India Ltd. it was contended that as the original share certificates and the D.R.F. (Demat Request Form) (as required under the law) were not received no confirmation of dematerialization could be given and the same was rejected by the Company on 27.7.1999. Similarly, second login took place on 8.4.2000 but the same was rejected on technical grounds in conformity with the Act. Thereafter, when the Bank made login on 19.6.2000 the share certificates and the DRN were duly matched by the Company and hence the Company confirmed the demat on 23.6.2000, within four days. Rolta India Ltd., submitted that it has followed the correct procedure and there is no cause of action against the Company. It was pointed out that the grievance of the Complainant is mainly against the Bank and that is clear from the notice given by the Complainant"s Advocate on 28.3.2000, as the same was addressed Opposite Parties No. 1 and 2. The notice was not addressed to the Company, and, hence the Company is only a formal party. In this complaint, it is alleged that Shri Anuj Mittal, son of the Complainant in the previous complaint, held 1,000 shares of ACTO industries Ltd., Mumbai. He also submitted an application through the IndusInd Bank Ltd. on 12.2.2000 for conversion of share certificates. As per the facts found on record, the shares were converted only on 12.4.2000. In both these matters, National Securities Depository Ltd. (for short the NSDL) (Opposite Party No. 2) took the plea that the complaint was not maintainable against it, because the Complainant has not hired its services and that it comes into picture only after completion of dematerialization process which is regulated by Regulation 54 of the SEBI (Depositories and Participants) Regulations, 1994. It is also pointed out that National Security Depository Ltd. had written a letter dated 23.10.2001 to the Complainant that Chandigarh Branch of IndusInd Bank had received share certificates from the Complainant and forwarded the same under DRN No. 91323 on 29.2.2000. The Company rejected it on the ground that the share certificates were in the name of the Complainant, whereas the DRF and the DRN were generated in the name of one Mr. Vijay Sharma. On realization of this mistake the IndusInd Bank Ltd. generated a fresh DRN number 101324 on 4.4.2000. Thereafter, the Company confirmed the same in favour of Complainant on 12.4.2000.

THE State Commission, after considering the contentions in both the matters, by its order dated 13.9.2001, allowed both the complaints. In Complaint Case No. 43 of 2000 it awarded a compensation of Rs.50,000/- for deficiency in service rendered by the Bank as well as the NSDL; and in Complaint Case No.44 of 2000, it awarded a compensation of Rs.70,000/-. It gave a specific direction that the liability of the Opposite Party bank and the NSDL will be subject to the provisions of Section 16 of the Depositories Act, 1996. It also awarded costs of Rs.5,000/- in each case. The State Commission rejected the claim of the Complainant to award compensation on the basis of the highest value of the shares during some time taken during the dematerialization.

AGAINST the order of the State Commission, all the parties have filed separate appeals, which are as under: First Appeal No. 332 of 2001: is filed by M/s. IndusInd Bank Ltd. against Vimal Mittal; NSDL; and, Rolta India Ltd. - for setting aside the order passed by the State Commission against it. First Appeal No. 333 of 2001: is filed by M/s. IndusInd Bank Ltd. against Mr. Anuj Mittal; NSDL Ltd.; ATCO Indus Ltd. - for setting aside the order passed by the State Commission against it. First Appeal No. 376 of 2001: is filed by Mr. Anuj Mittal against M/s. IndusIndi Bank Ltd.; NSDL Ltd.; ATCO Industries Ltd. - for enhancement of compensation. First Appeal No. 378 of 2001: is filed by Vimal Mittal against M/s. IndusInd Bank Ltd., NSDL Ltd.; Rolta India Ltd. - for enhancement of compensation. First Appeal No. 431 of 2002: is filed by National Securities Depository Limited against Vimal Mittal; IndusInd Bank Lt. and Rolta India Ltd. - for setting aside the order passed by the State Commission against it. First Appeal No. 432 of 2002: is filed by National Securities Depository Limited against Anuj Mittal; IndusInd Bank Ltd and ATCO Industries Ltd. - for setting aside the order passed by the State Commission against it. First Appeal Nos. 431/2002 and 432/2002 (filed by NSLD)

We would first take First Appeal Nos. 332/01and 333/01 filed by the National Securities Depository Ltd. Mr. Ratnam, learned Advocate submitted that the NSLD comes into picture only after securities/shares are dematerialized and therefore, the NSLD is not liable for negligence of the Participant. In our view, this submission is not well-founded and is against the Scheme of the Act and, particularly, Sections 4,5,10 and 16 of the Depositories Act, 1996, which are reproduced in the impugned judgement and order passed by the State Commission. However, we would mention that as per Section 5 of the Depositories Act, 1996 any person who intends to demateralise the share certificates, can avail the services of Depository through Participants. For this a Depository enters into an agreement with one or more participants as its agent as contemplated under Section 4(1) of the Depositories Act, 1996. Hence, Participant is an agent of the Depository for the demat purposes. In these set of circumstances, it cannot be said that Depository comes into picture only after shares are dematerialised and information is given to the Depository to that effect. For dematerialization the share holder has to approach the Participant who is registered as agent with the Depository, i.e. to say, for dematerialization depositories function through its agents. For being appointed as an participant, a person is required to file an application in a prescribed form as provided by SEBI (Depositories and Participants) Regulations, 1996. Regulation 16 thereof provides that an applicant has to file an application in Form-E, through each Depository in which the applicant proposes to act as a Participant. Considering this aspect, Participant acts only as an Agent of the Depository. Further, Section 16 of the Depositories Act, 1996, specifically provides that where the loss has occurred to the beneficial owner due to the negligence of the Participant, the Depository shall indemnify such beneficial owner. That means for the negligence in discharge of duties by the participant , the Depository, namely, the NSLD, is required to pay the amount to the benefical owner and thereafter, recover the same from the Participant, namely, IndusInd Bank.

IN this view of the matter, the order passed by the State Commission holding the NSLD jointly liable, cannot be said to be erroneous on this point. Therefore, there is no substance in the appeals filed by the NSLD. First Appeal Nos. 332/2001 and 333/2001(filed by IndusInd Bank) First Appeal Nos.332/2001 and 333/2001 are filed by the IndusInd Bank Ltd. The Rolta India Ltd. has pointed out that the first login under the Depositories Act, 1996 generated by the Opposite Party No.1 (who admittedly is the Participant of the Complainant) was made on 6.7.1999, but as the original share certificates and the DRF (as required under the law) were not received, no confirmation of dematerialisation could be given and therefore dematerialisation was rejected by the Company on 27.7.1999. Similarly, the second login on 8.4.2000 was also rejected on technical grounds (share certificates were not given) in conformity with the Depositories Act, 1996 on 11.5.2000. When the Bank made the login on 19.6.2000 after receipt of share certificates, the DRN were duly matched by the Company and thereafter the Company duly confirmed the Demat on 23.6.2000 i.e. within 4 days.

FOR deciding the matter, the State Commission relied upon the said reply given by the Rolta India Ltd. (FA332/01) wherein it has been pointed out that mistake was committed twice in login by the Participant and on the third occasion when the login was without mistake demat was confirmed within 4 days. Therefore, the State Commission rightly observed that the delay was caused due to non-furnishing of the relevant documents by the participant-IndusInd Bank and the Issuer " Company took up the matter of dematerialsation on receipt of complete documents and within four days share certificates were dematerialised. Same is the position in respect of the shares of the ATCO Industries Ltd. (FA No.333/01). The delay was due to incorrect information given by the Participant " Bank. No doubt, delay was only a few days. For this, the IndusInd Bank itself contended that on 15.2.2000, the Complainant handed over 1000 shares to it and that it had sent the same with Demat Request Forum dated 15.2.2000 to its Corporate Office. The Corporate Office of the Bank generated Demat Request Number and sent the same to ATCO Industries on 29.2.2000. Thereafter on 4.4.2000 the ATCO Industries verbally asked the Bank to generate a fresh DRN with correct name and the Bank did the same on the same day. On 12.4.2000 the ATCO Industries accepted the fresh DRN. In our view, from the admitted facts there is apparent delay at the initial stage by the Bank itself because the Form was handed over by the Complainant to the Bank on 15.2.2000 and the same was sent to the Companies Office (ATCO Industries) virtually after 15 days i.e. on 29.2.2000. Normally, dematerialization requires to be completed within 15 days from the date of receipt of the application. Again, as the name was incorrect, the same was required to be corrected and as soon as it was corrected, the shares were dematerialized. This establishes deficiency in service on the part of the Bank which resulted delay in dematerialization of the shares. Hence, there is no substance in these two appeals filed by the N.S.L.D. First Appeal Nos.376/2001 & 378/2001( for enhacnement Of compensation filed by the Complainants) First Appeal Nos. 376/2001 and 378/2001 are filed by the Complainants for enhancement of the compensation.

AS stated above, the State Commission rightly arrived at the conclusion that there was delay in dematerialsation of shares because Participant Bank did not properly handle the matter and did not send the relevant documents. Considering the aforesaid facts, the State Commission held that the Participant Bank is required to pay compensation to the Complainant. However, with regard to award of compensation there was nothing on record to establish that the Complainants at any point of time requested the Participant Bank to transfer the shares at the price prevailing on any particular day. So, on ad hoc basis the State Commission awarded compensation of Rs.50,000/- for the deficiency in service rendered to Vimal Mittal, complainant in Complaint Case No.43/2000. Similarly, in case of Anuj Mittal, Complainant in Complaint No.44/2000, the State Commission awarded compensation of Rs.70,000/- and rejected the claim of lakhs of rupees of the Complainant.

IN our view, the said findings cannot be faulted, because, the Statement made by the complainant (s) in both the cases in regard to the price of shares is totally vague. In Complaint No.43/01 it has been stated that at appropriate time the value of the shares of Rolta India Ltd. was Rs.1015/- per share and at that time Complainant could have sold her shares but could not do so due to negligence on the part of the Participant and the Depository in not effecting conversion. There is nothing on record to establish that on a particular date the Complainant was willing to transfer the shares and has at any point of time informed the same to the Participant Bank. Therefore, the claim of Rs.1,62,400/- for 160 Shares of Rolta India Ltd. @ Rs.1015 per share is without any substance. Similarly, the claim for interest @ 18% p.a. would also not survive. Further, there is nothing on record to substantiate the claim for Rs.3,00,000 for physical harassment or mental agony. Hence, the impugned order passed by the State Commission awarding compensation of Rs.50,000/ - to the complainant in Complaint No.43/2000, does not call for enhancement of compensation. In the similar complaint No.44/2000, filed by Anuj Mittal, it has been prayed that an amount of Rs.5,50,000/- i.e. the difference of market rate at the time when the needful should have been done and the rate prevalent at the time when the needful was actually done, and, Rs.2,000 as expenses of legal notice plus Rs.4,00,000 as compensation for harassment with interest be awarded. In this complaint also a vague statement has been made that the market price of the shares of ATCO Industries Ltd. was Rs.821 per share at appropriate time and complainant could sell his shares at such rate but could not do so due to negligence on the part of the opposite parties in not effecting conversion. There is nothing on record to suggest that Complainant tried to transfer the shares on any particular day. Hence, the impugned order passed by the State Commission awarding compensation of Rs.70,000/ - to the Complainant in Complaint No.44/2000, does not call for enhancement of compensation. In the result, for the reasons stated above, First Appeal No.332/01, 333/01, 376/01, 378/01, 431/02, 432/02 are dismissed. There shall be no order as to costs in all the appeals.